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Association
of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto |
Volume 52, No. 7 July 1996
MEDICARE AND PATIENT FREEDOM
``Senior citizens, and other Americans, deserve better than
compulsory socialized medicine,'' stated AAPS Director Vernon
Goltry, M.D.
When Medicare was signed into law on July 30, 1965, it came
with guarantees that it was a voluntary program, at
least for recipients (though not for taxpayers). Its
voluntary nature is the excuse for Congress and the
courts to refuse to alter the most oppressive and destructive
features of the program.
A reminder that Medicare is voluntary is the
basic theme of Medicare Patient Freedom Day, an annual
commemoration begun by AAPS with the 30th anniversary of Medicare
in 1995.
Patients are not required to have confidential
medical information turned over to the government on HCFA form
1500 each and every time they seek a medical service. Patients
are not required to accept money taken by force from
taxpayers each time they seek medical treatment. Patients
are not forbidden to seek care from physicians who
decline to work under the constraints of the HCFA bureaucracy.
Patients volunteer for these requirements and
restrictions when they sign the form requesting Medicare payment
(see p. 2).
In 1996, the significance of Medicare Patient Freedom Day to
all Americans is increasingly clear. Medicare is the
prototype for forcing all patients to relinquish their
privacy and freedom of choice as a condition for receiving
insurance coverage of any type. Actually, the freedom of
all patients, even self-pay patients, would be abridged
by certain provisions (``administrative simplification'' or
forced computerization) in H.R. 3103 (Kassebaum-Kennedy), but
enforcement would be difficult.
As the bankruptcy date for Medicare inexorably approaches
(payments already exceeded tax revenues by $34 million in
1995 despite a projected surplus of $3.4 billion), pressures
rise for ``reform.'' But so-called ``market-based'' reform-
government favoritism that tends to push more patients into HMOs-
really amounts to corporate socialism. In this model, the
government delegates the rationing decisions (``tough choices'')
to quasi-private bureaucracies.
Unlimited demand and a relentless increase in costs were the
predictable results of Medicare and of tax incentives for third-
party payment of most medical expenses. Attempts to contain costs
lead to pressures to reduce quality. To respond to public
discontent, while maintaining the privileges of the entrenched
government and insurance bureaucrats, requires two things:
scapegoats and a source of more revenue.
``Providers'' who have accepted the Medicare money are
serving both as scapegoats and deep pockets in burgeoning ``anti-
fraud'' efforts (which Kassebaum-Kennedy would expand from
Medicare and Medicaid to all insurance contracts-see
AAPS News, June 1996). For a preview of what will be
happening everywhere if Kassebaum-Kennedy survives conference, we
can look at enforcement actions in Medicare:
- University of Pennsylvania doctors will pay $30
million ($10 million in alleged overcharges to Medicare and $20
million in penalties), the costs and risks of defense being
deemed insupportable. The settlement agreement provided that: the
amount due is not dischargeable by bankruptcy; the U.S. did not
release any entity from possible criminal prosecution; the amount
paid did not constitute ``punishment''; and the released entities
waived any defense under the Double Jeopardy clause.
- In Operation Restore Trust in Florida, doctors could lose
their licenses long before exhausting criminal and civil appeals.
``It's scary that you have no due process,'' stated attorney
Sandra Greenblatt (Medicare Compliance Alert 1/15/96).
- Physicians paid settlements ranging from $250,000 to $2.5
million'' because of errors made by their billing company,
IncomeRX, which was fined $25,000 before going out of business
(Part B News). Inadequate supervision of billers can
also land a doctor in jail (Medicare Compliance Alert
2/12/96).
- Risky procedures that could trigger an audit: billing for
more than 25% of visits at times when most offices are closed,
such as weekends and holidays, or downcoding, which suggests you
don't know what you're doing.
- A key strategy is to make use of undercover agents and
phone and video surveillance (BNA's Medicare Report
10/20/95).
Although such actions are targeted at
``providers,'' they affect patients in
several ways: patient privacy is violated by investigators;
physicians may be increasingly unwilling to provide services;
costs are increased; and physician's efforts must be diverted
into compliance rather than medical activities. Note that the
(uninsured and uninsurable) cost of defending against prosecutors
and paying recoupments and penalties vastly exceeds most
malpractice awards. An inadvertent technical violation of the
``integrity'' of a plan may carry a far higher pricetag than a
negligent injury of a patient!
All of these risks are assumed by patients and physicians
who accept money from the Medicare or Medicaid program (or under
Kassebaum-Kennedy, any insurance program). These Draconian
controls are (supposedly) accepted voluntarily. What
would be the nature of the controls if the program were
compulsory? Winston Churchill foresaw the consequences of
socialism, although he was too tired to fight it:
``A socialist policy is abhorrent in the British ideas of
freedom...[T]here can be no doubt that socialism is inseparably
interwoven with totalitarianism and the abject worship of the
state. It is not alone that property, in all its forms, is
struck at, but that liberty, in all its forms, is challenged by
the fundamental conception of socialism.''
Complete bureaucratic control over life and death in America
can only be averted by preserving private medicine. On Medicare
Patient Freedom Day, 1996, AAPS will once again proclaim their
right to private contract.
Private Contracting Update, and
Echoes from Medicare Patient Freedom Day, 1995
Illegal but Not Punishable, or Punishable but Not
Illegal? The Medicare Part B Hotline for May 1996
[copy available on request] states that ``the Health Care
Financing Administration does not seek to limit or interfere in
the right of a beneficiary to obtain medical care from the
physician of his or her choice.'' The rest of the article
details exactly how HCFA does interfere with the
practice of medicine, in violation of Section 1395 of Title 42 of
US Public Health and Welfare Law.
As the article points out, ``a claim cannot be submitted
to Medicare unless the Part B beneficiary or someone on his or
her behalf has signed the claim for Medicare payment.... In
this circumstance, the Part B beneficiary is preventing the
physician from complying with the mandatory claims submission
requirements....'' However, the article also states that even the
``suggestion'' by a doctor that the patient might wish
to exercise the right to private contract and the right to
privacy by not turning over confidential medical information to
bungling, irresponsible government bureaucrats constitutes
``coercion.'' Clearly, it is HCFA that is guilty of
coercion and of violating physicians' and patients' rights to
free speech.
The Part B article further asserts that
``agreements with Part B beneficiaries purportedly waiving these
Federal requirements have no legal force or effect and do not
protect a physician from Federal penalties for failure to comply
with the law if a Part B beneficiary chooses not to abide by
such an agreement.'' If the government has the authority
simply to declare contracts invalid, then a contract is not a
contract, and the government will have abrogated the Medicare
patient's right to make private contracts. There is no precedent
in the courts to take the position that all contracts of a
specific type (e.g. to waive Part B benefits) are coercive by
definition.
Another question is whether the government has the right to
dictate the terms of private contracts. But if the patient does
not authorize release of information, the government is not even
authorized to discover the terms of the contract.
HCFA asserts that ``in our experience, Part B beneficiaries
virtually always want Medicare to pay for covered services.'' How
can HCFA speak for what beneficiaries ``want''? Have they
forgotten the prominent case (Stewart v. Sullivan) in
which patients and a physician took them to court to assert their
right to private contracts? HCFA has put no
prohibition of private contracting in writing, and Congress
has passed no law to forbid it. [Neither has the constitutional
authority to do so -- Ed.]
I have sent letters on the issues of free speech and private
contracting to Mr. Thomas Ault, HCFA Bureau of Policy
Development, on July 7, Sept. 19, and Oct. 24, 1995, and have yet
to receive a reply, even though this policy information was
requested under the Freedom of Information Act.
[AAPS also received no reply to our inquiries about whether
HCFA intended to take enforcement action on Medicare Patient
Freedom Day, 1995 -- Ed.]
Lawrence R. Huntoon, M.D., Ph.D.
No ``Vigorous Pursuit'' for $1. On August 1, 1995,
Anthony A. Cassens, M.D., confessed to HCFA that he had made a
house-call for a Medicare-eligible patient, Mary Sue ****, after
agreeing beforehand that the charge would be $1.00 cash and that
neither would submit a billing claim to HCFA. He asked whether
he had violated any laws and whether HCFA would impose sanctions
for accepting payment not in accordance with HCFA reimbursement
schedules.
On Nov. 8, 1995, Dr. Cassens finally received a reply from
Thomas Ault, who noted that the charge of $1 did not violate
Medicare's limiting charge for house calls. He also noted that
failure to submit a claim on the standard form within one year of
providing the service did violate Section 1848(g)(4), and civil
monetary penalties could be imposed.
Mr. Ault continued: ``While we take our obligation to
enforce this statutory requirement very seriously, it is not
HCFA's policy to seek sanctions under section 1848(g)(4) where,
as here, the beneficiary was unlikely to have been harmed since
she was charged only $1. Pursuing sanctions in such a case would
be an inappropriate use of the Medicare program's scarce
administrative resources. However, be assured that we will
vigorously pursue sanctions where failure to submit a claim would
appear either to jeopardize a beneficiary's use of the Medicare
benefit or to circumvent an important beneficiary protection,
whether it be the Medicare limiting charge or another statutory
requirement with which a physician disagrees.''
A Form for Non-Medicare Physicians
MEDICARE ACKNOWLEDGEMENT FORM
As a patient of Dr. _____, I confirm my full knowledge that
he does not participate in, nor is he a provider for, Medicare
Part B. Accordingly, I hereby consent and agree that he will not
furnish any documentation whatsoever for recognition by Medicare
as a receipt for medical services rendered.
For valid consideration, I expressly promise and warrant
that neither myself nor my heirs, executors, administrators,
successors, beneficiaries, or assigns, will ever seek reimburse-
ment, directly or indirectly, from any Medicare carrier for any
medical services provided by Dr. ____.
I consent and agree that Dr. ____ is justified in relying
upon this Medicare Acknowledgement Form in rendering services on
my behalf. I promise to reimburse him for any reasonable
attorneys' fees and costs which may result from my breach of any
aspect of this form.
Except as set forth herein, I am neither relying on any
supplemental representations nor have any supplemental agreements
with Dr. ____ regarding Medicare reimbursement.
Patient __________________________
Signature ________________________ Date
______________
Witness___________________________ Date
______________
Notes: (1) It is preferable to confirm ``knowledge'' rather
than ``being informed.'' One can be informed without believing
the information. (2) It is preferable to ``promise and warrant''
when the other party to the agreement (the physician) is not co-
signing the form. (3) It is advisable to bind heirs, executors,
etc., since they often are the ones who actually file the claim.
(4) The third paragraph enhances the enforceability of the form.
(5) The fourth paragraph protects the physician against spurious
charges by the patient or the government that there was a side
deal or oral modification to the Form. (6) The term
``Acknowledgement'' is used instead of ``Disclaimer'' to improve
accuracy and avoid negative connotations.
Andrew Schlafly, Esq.
Correspondence from the LLCS
Does Opposing Managed Care Violate Antitrust Law?
First Health West, a managed care group in Oklahoma,
recently threatened to sue physicians who had refused to deal
with it, purportedly ``acting together to block or otherwise
frustrate the growth of alternative delivery systems.''
Most antitrust actions are brought by physicians complaining
of the anti-competitive effects of exclusive contracts and
managed care. In this instance, a managed care group has
attempted to invoke the antitrust laws in order to intimidate
private physicians.
First Health West has a reputation among rural
physicians for monopolizing the market, engaging in predatory
pricing, and otherwise intimidating physicians who maintain
independent private practices. In October 1995, a grand jury in
Lawton returned twelve sealed indictments against individuals
connected with the activities of First Health West. The grand
jury reported that the primary goal for establishing a managed
healthcare program was to monopolize medical practice rather than
to provide good care to residents of Comanche County (Modern
Healthcare, 10/23/95, p.24). The grand jury expressly
recommended that the hospital administration be prohibited from
threatening the practices of independent physicians.
First Health West has not abandoned its efforts, however.
To the contrary, it applied for and obtained the right to
participate in the final application stage for the HCFA Medicare
Choices demonstration project. First Health West apparently
needed to have signed provider contracts by March 8, 1996, in
order to remain a viable applicant. During the week of March 4,
1996, First Health West conducted a series of meetings with
physicians and administrators in order to induce participation in
its program. In light of the foregoing indictments, it is likely
that the hostility to First Health West was already at a fever
pitch; nevertheless, several physicians and administrators did
attend such meetings in good faith.
On March 5, 1996, a meeting was held at Elkview General
Hospital, during which physicians and administrators discussed
the proposals of First Health West. The nature and content of
such discussions are not generally known. What is known is that
none of the attendees subsequently elected to contract with
First Health West, nor did another physician who had
communicated such intentions prior to the meeting.
First Health West immediately threatened to sue the
attendees at the meeting. Counsel drafted and circulated a
complaint, but it is doubtful that such complaint will ever be
seriously pursued. The claim- though possibly effective
for the purpose of intimidation-is without merit.
First Health West claims that the physicians and
administrators breached Section One of the Sherman Act, which
prohibits ``[e]very contract, combination in the form of trust or
otherwise, or conspiracy, in restraint of trade or commerce,'' by
entering into an improper agreement to restrain trade by deciding
not to deal with First Health West. Such agreement, according to
the allegations of First Health West, has (i) caused higher
prices for physician services, (ii) deprived managed care
entities of the benefits of full and fair competition, (iii)
hindered development of innovative health care delivery systems,
and (iv) deprived consumers of full competition in health care.
First Health West wisely avoided alleging a violation of
Section Two of the Sherman Act, and thereby obviated the need to
demonstrate monopoly power by the proposed defendants. (This
would have been impossible here). Instead, First Health West
merely alleges an agreement to restrain trade, which is
unlawful regardless of market power.
There are, fortunately, several fatal defects to this claim
of First Health West. The most glaring defect is that First
Health West has no direct evidence that any agreement was
actually reached among the proposed defendants with respect to
excluding First Health West. It may be that the meeting
attendees merely ``discuss[ed] their individual choices whether
or not to contract with First Health West with one another.''
Informational exchanges alone, without an agreement or other
concerted act, do not typically constitute a violation of
Section One of the Act. (See Wilcox v. First Interstate Bank
of Oregon, N.A., 815 F.2d 522, 525-27 (9th Cir. 1987).)
Unless First Health West can uncover a written agreement or
taped conversation, it will unlikely be able to prove that a
Section One violation actually occurred here. (See Gulf
States Land & Dev., Inc. v. Premier Bank N.A., 956 F.2d 502
(5th Cir. 1992).)
Even if there were an actual agreement to refuse to deal
with First Health West, such an agreement may have been
``reasonable'' and therefore proper under the antitrust laws.
Although Section One jurisprudence is murky on this point, the
consensus is that reasonable agreements to refuse to
deal with a supplier do not constitute violations of Section One.
Such agreements, which can even entail outright boycotts,
are permissible under the antitrust laws if there is
``justification derived from the policy of another statute or
otherwise.'' Silver v. New York Stock Exchange, 373
U.S. 341, 348-49 (1963). In light of the track record of First
Health West-which apparently includes numerous indictments-an
express boycott of the organization might even be lawful.
Finally, it is worth observing that First Health West does
not qualify as a traditional victim of antitrust violations. In
fact, the Department of Justice (DOJ) recently condoned
collective behavior analogous to the allegedly improper acts
of the Oklahoma physicians and administrators. Anne K. Bingaman,
head of the Antitrust Division, stated in a letter dated April
24th that a group of New Jersey hospice care providers could form
a network to act as an intermediary for the negotiation of
managed care contracts between its members and third-party
payers. ``According to DOJ, the network should provide
efficiency benefits by permitting third party payers to contract
with a group of hospice care providers through a single
representative. The network may also result in efficiency
benefits from utilization review and quality assurance
monitoring'' (BNA Health Care Daily 5/1/96). DOJ did
base its letter on the geographic independence of the network
members. DOJ advised that, in the event the members ever became
competitors within the same geographic market, concerted
decisions about competitively sensitive matters must then relate
to significant economic integration among the members. Simply
put, actual competitors should be careful when they engage in
concerted action against suppliers.
It is not known how effective the intimidation by First
Health West has been in Oklahoma. The legal costs associated
with drafting and sending a threatening letter and complaint are
relatively small. The impact of such a threat is often
substantial, and more than justifies the cost. Clearly, the
stakes in the battle between managed care and independent private
practice continue to increase, and bitter disputes like the one
in Oklahoma will likely emerge in other jurisdictions as well.
Andrew Schlafly, Esq., New York, NY
Members' Page
Is This Fraud? 1. Although the Medicare Limiting
Charge Law now applies to all Medicare patients, whether Medicare
is primary or secondary, the Blues and other insurers continue to
charge the same ``private-pay premiums'' while the Law cuts their
actual expenditures in half.
2. The March issue of News of New York reports an
ongoing process for HCFA to remove erroneous edits from their
coding manual. About 5,700 erroneous edits were dropped recently-
that's 7% of the 87,000 recently unleashed upon doctors. If they
keep up this rate on their quarterly updates, about 28% of the
edits put in place in a year will be erroneous. For participating
physicians, HCFA automatically corrects the claims, but for
nonparticipants, HCFA can legally trash the doctor's reputation
as they tell patients they are eligible for an immediate refund.
Nonparticipants must also incur the expense of writing back to
HCFA in each instance within 15 days or else become officially
guilty by default.
3. Blue Forgers (aka Blue Bunglers and Blue Burglars) can
argue that they don't actually forge doctors' signatures, they
just alter the documents that the doctors signed so that it looks
like they signed something else. The ``penalty'' when they are
caught red-handed is a ``time-out'' period from enrolling new
Medicare beneficiaries, rather like sending a bank robber to the
penalty box for 5 or 10 minutes.
Lawrence R. Huntoon, M.D., Ph.D.
 
Plato on Government Regulation of Medicine. Amid the
ruins on Palatine Hill in Rome, I read some of Eric Voegelin's
commentary on Plato's Statesman and Laws: Let
us suppose that citizens, who had been hurt or charged too much
by their physicians, resolve on a set of regulations which will
determine the action of physicians to the last detail. Suppose
that each year the physicians have to face a people's court of
review, where anyone can charge them with violating a rule. If
convicted, they will be sentenced to a fine or jail....The
Younger Socrates interjects contemptuously that anyone who would
serve under such conditions deserves any penalty.
But the Athenian Stranger continues. He further supposes an
enactment that forbids anyone to inquire into medicine. Anyone
who nevertheless indulges in such an inquiry and makes a new
discovery that he imparts to the young shall be punished with
utmost rigor, ``for nobody should be wiser than the law.'' Plato,
in a rare instance of speaking directly, answers the question
about the effects of extending this procedure to all arts and
sciences: ``The arts would utterly perish and could never be
recovered; and life which is a burden even now would then no
longer be worth living.''
Robert Cihak, M.D., Aberdeen, WA
 
On Kassebaum-Kennedy. The fact that the measure passed
the Senate on a 100-to-0 vote suggests to me that no one read the
bill, or no senator has any real principles.
A. James Sniderman, M.D., Dayton, OH
  New Jersey has experienced Kassebaum-Kennedy for four
years now with our own Insurance Reform Act of 1992. It seemed
great at first with community rating and guaranteed issue, but
rates are now rising so fast that the people are finding it
unaffordable again; it has actually made things worse.
Alieta Eck, M.D., Piscataway, NJ  
The AMA has unfortunately supported this bill. Ultimately,
if something is not done to stop the criminalization of medicine,
we will all have to voluntarily resign.
Richard A. Neubauer, M.D., Lauderdale-by-the Sea, FL
 
Even Before Kassebaum-Kennedy: We received a
letter from the Medicare Benefits Integrity Dept alleging that we
used the code 83721 improperly for every LDL we
performed from 10/93 through 1/96 and demanding that we go
through laboratory work sheets now in storage for the 8400 tests
listed, within 30 days. In fact, there was no bench-top
test for LDL until late 1993. We have the CPT code books; they
didn't tell us it was forbidden to calculate LDL until mid-1995.
We switched as soon as we found out. Now they are waving a
newsletter in which the information was buried among hundreds of
items, saying we ``should have known.'' They are inconsistent,
sometimes using AMA CPT codes and sometimes not, and they won't
give you a straight answer, but now they are demanding to recoup
about $80,000. We left Canada to get away from this nonsense,
although in Canada they don't have jail time or asset forfeiture,
just fines and deprivation of your license for a time. We knew it
was over for medicine in the US in 1984, when the government
fixed prices and there was no physician uprising. We're getting
out of medicine before they take us away in cattle cars.
Richard D. Fisher, M.D., Sun City, AZ
 
Echoes. Fear of revolution led Bismarck to make German
workers dependent on the state; Lenin had similar plan. Both used
``health care'' for maintaining the totalitarian state.
Teddy Darocha, M.D., Canadian, TX
 
AAPS Calendar
July 30. 2nd annual Medicare Patient Freedom Day.
Sept. 26-28. IATROS meeting, Troon, Scotland: call Dr. Tim
J.
Winning, Berato, Barrs Brae, Kilmacolm PA 13 4DE, Renfrewshire,
Scotland, phone: 01505 874473.
Oct 10-12. 53rd annual meeting, La Jolla, CA.
Sept 17-20, 1997. 54th annual meeting, Chicago, IL.
Legislative AlertThe Price of Pulling a Fast
One
Dr. Jane Orient's May 30 Wall Street Journal piece
on the Kassebaum-Kennedy fraud-and-abuse provisions has had the
phones ringing off the hook on Capitol Hill. That's the word from
senior congressional staff. While conferees have not yet been
appointed, House and Senate staff have been having serious
communications on the outlines of a compromise. Given past
experiences with Congressional staff on health care policy,
whether Republican or Democrat, this is always a risky
enterprise. They have an immense capacity to create a politically
embarrassing mess. Of course, congressional staff don't have to
take the heat at election time.
This is supposed to be a conservative House of Representa-
tives. No wonder conservative Members of Congress and their
staff, the alleged majority, are both upset and embarrassed that
they didn't catch the Clinton-style fines and penalties imposed
on doctors, especially since key provisions of the punitive
legislation were lifted literally word for word out of the
detested Clinton Health Plan. No wonder the language is
strongly backed by the Clinton Administration's Department of
Justice. Fining doctors $10,000 for coding errors, when there is
``no specific intent'' to defraud, is nuts on the face of it.
While the General Accounting Office (GAO) has done extensive
work detailing the extent of fraud and abuse in the federal
Medicare program, relatively little has been done to study fraud
and abuse in the private sector or even the Federal Employee
Health Benefits Program (FEHBP). (Oddly, the FEHBP is exempt from
certain fraud-and-abuse sanctions in the Kassebaum-Kennedy bill-
kickback provisions-that apply to other federal health care
programs. Whatever happened to the famous ``Contract With
America'' principle that whatever applies to everybody else also
applies to Congress?) Nor did Ways and Means, House Judiciary, or
the Energy and Commerce Committee hold extensive hearings on the
subject.
So, how did congressional conservatives, who campaigned for
a sharp reversal of direction in federal policy and told voters
they would have nothing to do with the hated Clinton health plan,
ever vote for such a thing? The easy answer is that they simply
didn't read the bill. Pilot error. Part of the reason is, of
course, the primary focus on the legislation's major policy
initiatives, namely medical savings accounts, business pooling
arrangements for insurance, and the guaranteed portability
provisions of the bill. Part of it is the fact that the onerous
provisions dealt with fraud and abuse, and who could vote against
efforts to stop fraud and abuse, especially in the Medicare
program, where it has reached disgraceful levels.
But legislative provisions don't just happen; they have
authors and sponsors. The word on Capitol Hill is that the fraud
and abuse language was generated by Congressman Christopher
Shays of Connecticut, a member of the House Budget and the
Government Reform and Oversight Committees, and Congressman
Steve Schiff of New Mexico, who serves on the House
Judiciary Committee.
Expect some action in conference. It is likely that this
language will be dropped or substantially modified, fraud more
carefully and competently targeted, and more competent
legislative work accomplished before this thing is over. As of
this writing, conferees on the Kennedy-Kassebaum legislation
still have not been appointed.
The Future of MSAs
The most intense discussions center on the House's
Medical Savings Account (MSA) provisions. According to the Joint
Tax Committee, MSAs will be most popular with folks in the
middle income range ($40,000 to $75,000 per year). So much
for the class warfare argument.
In a related development, the American Academy of Actuaries,
a fun bunch of number crunchers, says that MSAs are likely to be
attractive to small employers and young people. Assuming ``wise
design,'' about two thirds of current workers would be better off
financially with an MSA, while one third would have greater out
of pocket expenditures. The Academy does not expect MSAs to
reduce the number of the uninsured. It believes that MSAs will
move slowly at first, then pick up steam after Americans get to
understand them.
The arguments against MSAs contradict each other. Some
dismiss them as being of no account in stabilizing medical costs
or increasing market efficiency because so few people will choose
them. If that is the case, how can MSAs then threaten the
stability of the health insurance market? If the problem is
adverse selection, then the argument against allowing a choice of
MSAs would also apply to allowing a young family a choice of a
managed-care plan. Indeed, managed-care interests were recently
fending off this argument from traditional insurers.
In fact, a May 1996 report by the National Academy on Aging
made the very same point with reference to the introduction of
options in Medicare: ``Although all Medicare recipients would be
encouraged to join managed-care programs, those in good health
are more likely to accept the financial incentives to do so. The
same is true for medical savings accounts. Those in poor health
are more likely to find the certainties of traditional fee-for-
service care-the devil they know-more attractive, leaving that
pool disproportionately populated by those with the highest
health care costs.''
OK, then. So we should forbid folks from choosing
managed-care plans for the same reason we should forbid them from
choosing MSAs. The only way to prevent adverse selection is to
prevent any choice at all. Yet employers seem to have done a
good job in managing and pricing risk with managed care and
traditional insurance. Why couldn't they do an equally good job
with MSAs too?
Then there is always the dreadful possibility that MSAs are
actually a good idea, and lots of folks will open them and spend
their own money on medical services. Congress and the President
are then preventing folks from spending their own money and
protecting the vast spending power of insurance companies. How
will the soundbite go: Be True to Your Blues? You Should Care
About Kaiser? That's got a ring to it, right?
The latest mumbling coming out of the White House is that
well, maybe, yes, we could have MSAs if they were set up as a
demonstration program. Another variation is that we should set up
MSAs but fix some time period on enrollment to avoid adverse
selection. Should not we do the same thing to managed care plans
or other plans in the FEHBP? Members of Congress and federal
workers and retirees get to switch once a year. Maybe it's time
we put a stop to that, too?
Big Fights over Business Pooling
House and Senate conferees will also wade into another
big special interest fight-insurance laws governing business
pooling. The House bill allows voluntary associations and
multiple employer welfare associations to get out from under
state mandated benefits by extending the 1974 ERISA rules to
small business pooling arrangements. The Senate bill sets up the
managed-competition style health plan purchasing cooperatives
(HPPCs). Needless to say, conservatives are skeptical of the
Senate arrangements because they fear the establishment of large,
geographically based cartels. They prefer to give small
businesses the same regulatory and legal breaks that big self-
insured businesses get today and would also open the insurance
market to more association plans sponsored by religious and
professional organizations.
But there's a catch. Setting up new rules for small business
and extending ERISA-like protections would aggravate the unlevel
playing field in state health insurance markets. The commercial
insurers would have to compete under the handicap of state
premium taxes and mandated benefits. It is one thing to have a
distorted insurance market based on the tax treatment of medical
insurance and leave it that way because of dumb inertia. It is
quite another to deliberately distort the market by setting up
two sets of rules for two sets of insurers. It is not what Adam
Smith would call a free market.
The lobbyists and members of the National Federation of
Independent Business (NFIB), which played havoc with the Clinton
Plan in the last go-around, are fighting like crazed demons to
secure passage of the House language. They argue that state-
mandated benefits are driving up the costs of medical insurance
well into the double digits, and that the treatment of small
business by Congress, as opposed to the treatment of large self-
insured companies, is unfair. They have a point.
Commercial insurers, led by the Blue Cross and Blue Shield
Association, are fighting to get rid of the House language. So
are the state bureaucrats. The National Conference of State
Legislatures, the National Governors Association, and the
National Association of Insurance Commissioners are saying that
the House bill reverses progress in state health insurance reform
(like Washington State, or Tennessee, or Minnesota?), and that it
is substituting inadequate federal solvency rules and consumer
protections for those coming from state regulation of this
industry. Naturally, state officials like the Senate bill better,
because it would ``complement'' the state's regulatory authority
over insurance rather than replace it.
Some Capitol Hill observers argue that when it comes to
markets, maybe the Blues just don't like competition. The
obvious solution is to have a net deregulation of the market for
everybody and level the playing field for all competitors.
To their credit, the House sponsors of the insurance pooling
provisions, Congressman Harris Fawell of Virginia and
Congressman Dennis Hastert of Illinois, proposed just such
a solution. They have understood the problems and set out to
level the playing field by preempting all state mandated benefits
and even preempting all state premium taxes. Congressional
conferees are going to have to revisit this issue and make some
serious decisions. The struggle over this pooling arrangement
issue, while technical, is significant: Is health insurance to be
a state or federal concern? Congress is going to have to address
this basic question.
Big Scary Medicare Numbers
By the time this goes to press, the Medicare Trustees
will have released their annual report. It is fashionably late,
and you can expect that the Clinton Administration's wordsmiths
have gone over every syllable to make sure that the report
doesn't become another embarrassment to the Administration.
However, the National Academy on Aging has just released another
report, summarizing the findings of top scholars on Medicare,
Social Security, and the other entitlement programs. The numbers
are scary. The Academy notes that the problems of the elderly are
born of our success in medicine and increased lifespan. So we are
celebrating, even as we debate the topic, the achievements of the
American experiment.
But the fiscal crisis is just around the corner: ``The
combination of the inevitable population aging and high medical
care costs dictate that federal retirement and medical insurance
programs receive prompt legislative attention, and the sooner the
better.'' The Academy notes that federal spending has shifted
from the military to health and retirement. While defense
spending equaled 14.3% of the GDP in 1953, at the top of the Cold
War, defense now takes only 3.9%. On the other hand,
citing the work of Gene Stuerele of the Urban Institute, the
Academy notes that health and retirement have jumped from 10% of
all federal spending in 1950 to 30% in 1970 and accounts for more
than 50% of all federal spending today. Interest on the
federal debt plus health and retirement spending make up two
thirds of all federal spending. Within the Medicare system,
Medicare Part B expenditures have grown by over 50% in the past
five years, or about 20% faster than the general economy.
According to the Academy, the oncoming Social Security
problem is manageable, and the strategies to deal with it can be
hammered out with time to spare. Medicare is different:
``Medicare's problems are...intrinsically intertwined with a much
larger issue-medical costs in America, which are rising at about
the same rate as per capita Medicare costs. This relative price
inflation for Medicare will soon be compounded by the demographic
shifts....There is no consensus on how to handle the broader cost
problem...''
Politically, Congress has been taking a beating on Medicare
reform, and it is no wonder. The survey data indicates that huge
majorities of Americans are willing to support ``cuts'' in
Medicare to save the system from bankruptcy. But once the debate
is framed in terms of the balanced budget, a ``modest'' majority
will oppose such cuts. Moreover, Americans, by overwhelming
majorities, will oppose Medicare ``cuts'' to pay for a tax cut.
Liberals have been effective in setting the terms of the 1995
and, thus far, 1996 debate on Medicare. Conservatives in Congress
are going to have to figure out how they sell Medicare reform,
especially at a time when it is desperately needed, i.e. sooner
rather than later.
The problem is that all of this is taking place prior to the
onrush of the great graying bulge in America's population
pipeline: The millions of Mouseketeers, the Baby Boomers. In
1990, 21% of the population was age 55 years and older. By 2010,
when the Boomers are set to retire, it will jump to 25%. By 2020,
it will reach 30%. Within the aging population, the oldest folks
are growing the fastest. Americans 85 years and older are the
fastest growing cohort in the American population; they are
expected to increase by more than 400% between 1996 and 2050,
from 4 million to 19 million. The current system, ancient and
bureaucratic, creaking under silly rules and centralized
planning, cannot handle this workload, and just about everybody
realizes it.
Read the 1996 Medicare Trustees Report, after it hits the
streets, closely. There is only so much that even the Clinton
Administration can do with the basic math. Return
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